Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA News
ARPA Webcasts

Featured Jobs

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Defined Contribution Analyst

The Benefit Practice
(Stamford CT / Maitland FL)

The Benefit Practice logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Retirement Plan Administrator

Premier Plan Consultants
(Telecommute / San Diego CA)

Premier Plan Consultants logo

Manager, 5500 Team

401K Generation
(Altamonte Springs FL)

401K Generation logo

Product Support Consultant

ftwilliam.com part of Wolters Kluwer Legal & Regulatory
(Telecommute)

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Defined Benefit Retirement Plan Administrator

Benefit Associates, Inc.
(Telecommute / Huntington Beach CA)

Benefit Associates, Inc. logo

DC Administrator

MGKS
(Telecommute / Phoenix AZ)

MGKS logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Pension Plan Administrator

DeMars Pension Consulting Services, Inc.
(Overland Park KS)

DeMars Pension Consulting Services, Inc. logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

SIMPLEs and ASGs

(Posted August 16, 2001)

Question 120: Companies A, B and C are in an Affiliated Service Group. Company A currently has 100 employees and a 401(k) plan that covers only employees of Company A. Company C has 2 employees and a SIMPLE IRA plan that does not cover the employees of Company A. Is the SIMPLE IRA plan in trouble for not covering the employees of Company A? (Company A does not desire to participate in the SIMPLE Plan.) This ASG has been in existince for about a year.

Answer: Yes, the SIMPLE is in trouble, or shortly will be.

IRC 414(m) says that for purposes of 408(p) (the SIMPLE provisions) and various other Code sections all employees of any member of an ASG are treated as being employed by a single employer. Now let's look at the requirements for a SIMPLE in that light.

IRC 408(p)(2)(A) provides that SIMPLEs can be maintained only by eligible employers. IRC 408(p)(2)(C)(i)(I) provides that an eligible employer is one with no more than 100 employees making $5,000/year during the prior year. The employees of A and B must be included in making that determination.

IRC 408(p)(2)(D) provides that the SIMPLE must be the only plan of the adopting employer. Company A's sponsorship of a 401(k) plan violates that requirement.

IRC 408(p)(4) says that a SIMPLE must cover all employees of the employer who meet the compensation requirements in the current and either of the last two years, other than those listed in the statutory exclusions of IRC 410(b)(3). Company C's SIMPLE does not do so because it does not cover the employees of A and B, many of whom would meet the compensation requirements and would not be excluded under one of the 410(b)(3) statutory exclusions.

So, that makes three separate provisions of the SIMPLE rules C is violating. Not so "simple," eh?

IRC 408(p)(10) helps us somewhat. It provides that if the SIMPLE was in existence before the ASG was formed and satisfies all the applicable 408(p) requirements before the ASG was formed, then it will be considered to meet those requirements for the remainder of the calendar year in which the change took place, plus all of the following year.

Does that solve your problem? No, not if C has been part of an ASG since its formation (because the SIMPLE never would have satisfied the 408(p) requirements). Nor would it solve your problem if the SIMPLE's plan document requires coverage of all qualifying employees of the employer or of an entity aggregated with the employer. Check the document and you will likely find such a clause. That would mean that the employees of A and B would be eligible to participate, whether or not the law requires them to be covered.


Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021 BenefitsLink.com, Inc.